As global markets face uncertainties, particularly in commodity sectors, sector exchange-traded funds (ETFs) are emerging as an attractive investment option.
Chintan Haria, Head of Investment Strategy at ICICI Prudential AMC, explains why investors should consider sector ETFs, especially in the oil, gas and metals sectors.
How to navigate commodity market volatility
Recent geopolitical tensions, including the ongoing conflict in the Middle East, have caused volatility in commodity prices.
While the direct impact on oil, gas and metals prices has been moderate, disruptions to key shipping routes such as the Red Sea have introduced price fluctuations.
Haria explains: “While the risk of higher prices in the long term remains low, short-term spikes are possible if the conflict escalates further.”
For investors, this volatility presents both risks and opportunities.
Sector ETFs, which focus on specific industries, offer a way to take advantage of these opportunities while managing risk.
Understanding Sector ETFs
Sector ETFs These are investment funds that track the performance of specific sectors of the economy, such as oil and gas, metals or technology.
Its objective is to replicate the performance of a sector index, providing investors with concentrated exposure to that sector.
Haria points out that these ETFs offer several advantages:
Focused exhibition: Sector ETFs, such as the ICICI Prudential Nifty Oil & Gas ETF and the ICICI Prudential Nifty Metal ETF, allow investors to focus on specific sectors.
“These ETF (exchange-traded funds) They offer concentrated exposure to the oil and gas sector and the metals sector, respectively,” says Haria.
This approach allows investors to benefit from sector-specific growth trends.
Diversification within the sector: In addition to offering exposure to specific sectors, these ETFs also diversify investments across multiple companies in the sector. This diversification helps mitigate the risks associated with individual stocks.
Profitability: ETFs typically have lower management fees than actively managed funds. This cost-benefit ratio makes them an attractive option for long-term investors.
Sector trends and investment potential
The oil, gas and metals sectors are poised for growth, driven by India’s economic ambitions and global market dynamics.
Haria highlights India’s goal of becoming a $5 trillion economy by 2025 and its strong economic fundamentals.
“With increasing industrialization and urbanization, domestic energy consumption and demand for metals will increase significantly,” he explains.
Investors can take advantage of this growth through sector ETFs, which align with India’s economic trajectory and policy support for these sectors.
Government initiatives such as production-linked incentive (PLI) schemes and reduction in import duties further support the sectoral growth prospects.
Investment Strategy: Why Now?
Despite recent strong performances, the oil and gas and metals sectors remain undervalued compared to the broader market indices. “These sectors are undervalued in terms of price-earnings (PE) and price-to-book (PB) ratios, making them a good buy,” says Haria.
As global economies recover and demand for commodities increases, sector ETFs offer a direct way to benefit from these trends.
Commodities often act as a hedge against inflation. With prices rising across many sectors, investing in commodity-focused ETFs can help protect against inflationary pressures.
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